Bitter Money Fights Shaped U.S History (Part 1): Johnson & Kwak

As a nation, we will have to make a choice, one way or another. If the national debt grows faster than the economy for long enough, investors could lose their appetite for Treasury bonds, making it impossible for the government to borrow money at any price — as almost happened in 1813.

@WARREN MOSLER, Every time I see James Kwak’s byline on a post, I think of Aflac. Weird brain connection. l do like some of Kwak’s policy posts, but when the topic shifts to the economic, it is just kwaking.

‘… When it came to explaining the Great Depression and what had to be done, Marriner Eccles was quite aware that he had “challenged all that had been said up to that point and [that he] was practically alone in doing so,” (Eccles, 1951, p. 104).’

[brief] Triumph of the Demand Side (so close, yet so far, and in the past)

p. 74 “… national income accounting, that the state should calculate the purchasing power necessary to produce full employment. Any deficit projected on this basis should be accommodated through direct [National] spending or tax cuts. This kind of active economic management … signaled a sea change in the economic ideas governing the United States.”

p. 75 “Given that the decline in purchasing power was the root cause of the slump, not only was budget balancing exactly the wrong policy, it actually augered against historical precedent.”

“Roosevelt concluded that, ‘let us unanimously recognize … that the federal debt, whether it be 25Billions or 40Billions can only be paid if the nation obtains a vastly increased citizen income.’”

Which sounds very non-MMT, but at the time (under semi-operational gold standards), was true. And expanded private sector incomes required nothing less than raising the nominal price of gold (an analogue to running larger deficits today), which he eventually did.

As a nation, we will have to make a choice, one way or another! If we give ourselves too much of the money we manufacture, and promise ourselves too much of that money back, we could lose our appetite for borrowing it from ourselves and paying ourselves back, at which point we will just have to give it to ourselves.

I am one of those you have managed to convince, but I am not ‘convinced’ enough to convince others when they bring up parts I don’t understand. I just read the Johnson & Kwak article. It doesn’t comport with my understanding of history, especially the fight to remove Colonial scrip that started with The Currency Act of 1764. What Hamilton did, as far as I remember, was to ensure British bankers dominion over the US via banking. It was congress’ refusal to renew Hamilton’s bank charter that started the War of 1812, because the Brits went ballistic. We lost. They won.

Paul, I poked around. I was doing research for something else and came across Binderup’s 1940 speech and Alain Pilote’s translated 1985 article on the history of US Banking. So I looked into Benjamin Franklin’s papers (Yale, franklinpapers.org). I read “The Nature and Necessity of a Paper-Currency,” available at franklinpapers.org if you use their search function. Franklin wrote this when he was 23 years old around 1727. Then I read “Benjamin Franklin And the Birth of a Paper Money Economy” By Farley Grubb, Professor of Economics, University of Delaware, and National Bureau of Economic Research” published by the Philadelphia Fed at:http://www.philadelphiafed.org/publications/economic-education/ben-franklin-and-paper-money-economy.pdf

Also amazing to read:
The statement by M S Eccles to the Senate Finance Committee in 1933. Wherein he was urging the government to increase demand by running a larger deficit.

Eccles became chairman of the Federal Reserve (in fact the building is named after him). Everything old is new again. Here is his take on the cause of the depression:

… but Eccles has become better known after his death for his having founded Demand Side Economics in 1951, when he wrote in his Beckoning Frontiers: “As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth … to provide men with buying power. … Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. … The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.”.

Warren, Simon Johnson just did a talk on NPR, so if the above is too painful to read, how about a mojito on the boat and you listen to him? Then, using a second recorder, you can stop what he’s saying and interject your POV, then play his next tidbit, and you react, etcetera. (OK, have a few mojitos.) Upload the audio to YouTube and we can make it go viral.

it’s like i died and went to heck in august 2008 and watching this slow motion train wreck is my punishment

SteveK9 Reply:March 26th, 2012 at 2:05 pm

@WARREN MOSLER, A longer book? A meeting with someone like Paul Krugman (you must like at least some of what he says, and he has an influential perch). Dean Baker is an even better choice. He is pretty close to MMT now and get’s on the tube fairly often.

@SteveK9, I agree with Steve here. A full length book aimed at a lay audience is what is needed. Perhaps you could combine forces with Randy Wray, Stephanie Kelton, Marshall Auerbeck(sp?), Bill Mitchell, etc. Next step would be to get one of you on a popular show like The Daily Show. I’m not sure what the process is for that, but I’ve seen far less interesting people on there. For the mean time, keep up the radio interviews you’ve been doing and I’ll keep making people listen to them.

chewitup Reply:March 26th, 2012 at 4:14 pm

@SteveK9,
Randy and Bill Mitchell are writing a textbook. Knowing Bill, it will be plenty long. Stay tuned. (Due next year?)